AU Optronics, Quanta shares rise on takeover

Shares of AU Optronics Corp (友達光電), the world's third-biggest maker of liquid-crystal displays, rose after the company announced last Friday that it would buy local rival Quanta Display Inc (廣輝電子) for US$2.2 billion in stock.

AU Optronics stock gained 2.7 percent, after rising as much as 4.5 percent in earlier trading, to close at NT$49.90 in Taipei, while Quanta Display surged 6.6 percent to its daily limit of NT$12.90. The nation's benchmark Taiex index fell 0.02 percent by the 1:30pm close.

"The biggest potential benefit for AU Optronics is acquiring Quanta Display's" three factories, including one so-called 6th-generation facility, for "US$2 billion total, versus US$3 billion" to build one 6th-generation plant, Jeffrey Su (蘇志凱), a Taipei-based analyst at Merrill Lynch & Co said in a research report last Friday.

LCD companies are seeking greater efficiency to profit from surging flat-panel television demand after screen prices tumbled 17 percent in the past year. The combined company would boast 18 percent of industry capacity, compared with 19 percent each for Samsung Electronics Co and LG.Philips LCD Co, based on DisplaySearch figures.

"Smooth integration and execution will be the key challenge," Su said.

The US brokerage has a "neutral" rating on AU Optronics' stock.

Shares of Quanta Display's parent, Quanta Computer Inc (廣達電腦), climbed 6.9 percent to the daily limit of NT$55.70.

AU Optronics, based in Hsinchu, said on Friday that it would issue one share for every 3.5 of Taoyuan-based Quanta Display's. At Friday's closing stock price, the acquisition was worth about NT$71.7 billion (US$2.2 billion), a premium of 15 percent.

Quanta Display posted a net loss of NT$9.1 billion for the nine months ended Sept. 30 last year, and had debt of US$1.8 billion.

The Taiwanese company hasn't yet reported its fourth-quarter and full-year figures.

"Quanta Display is likely to post losses in the first half and it could possibly break even by the year end," said Su.

The consolidation date of the merger is targeted for Oct. 1 and is subject to the approval of both companies' shareholders.

The AU Optronics transaction is the biggest acquisition in Taiwan since Fubon Financial Holding Co (富邦金控), the nation's third-largest financial service company, bought Taipei Bank (台北銀行) for NT$80.3 billion in August 2002, according to Bloomberg data.

The purchase would be the first in the industry since China's BOE Technology Group Co (京東方科技集團) bought Hynix Semiconductor Inc's flat-panel business in 2003. AU Optronics Chairman Lee Kun-yao (李焜耀) said on Friday the proposed takeover would help consolidate and restore order in the LCD industry.

AU's purchase "move may even spark more mergers in the industry" said Barro Liao (廖國峰), a fund manager at PCA Securities Investment Trust Co (保誠投信), which manages US$2.2 billion in assets.

"A mega merger like this can really excite investors," he said.